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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12695
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am looking to buy a truck for my sole prop business. I

Customer Question

I am looking to buy a truck for my sole prop business. I already bought a cargo van earlier this year. Both vehicles are used 100% for the business. Is there a way I could write off one of the vehicles 100% this year and the other one partially this year and write off the the amount left on next year tax?
Reason why I am asking is because I plan on buying a house next year, If I write both vehicles 100% off this year, my net income is going to be too low to get approved for the desired loan..
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi Marvin

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My name's Lane. I can help here.

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As it looks like you know, IRC §179 allows a business to acelerate the depreciation that's taken on a vehicle over the useful life ALL into the first year placed in service.

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You can certainly tak the 179 expense on one of the vehicles and then depredciate the other normallly, for most vehicles, that's five years.

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The business income limitation with § 179 is important too. The section 179 expense can only reduce your BUSINESS income to zero ... so if there is other income in the household, it won't affect that.

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Also important, to qualify for the Section 179 deduction for any given tax year, the equipment must be purchased or leased and placed into service between January 1 and December 31 of that year.

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So it sounds like using section 179 on only one of the vehicles and depreciating the other normally (OR taking your BUSINESS income down to zero by using one, or both, then carrying forward what you couldn't use becasue of the business income limitation) may get you very close to what you'r trying to do.

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Let me know what questions you have from here

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Lane

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I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986

Customer: replied 1 year ago.
34; (OR taking your BUSINESS income down to zero by using one, or both, then carrying forward what you couldn't use becasue of the business income limitation) may get you very close to what you'r trying to do."I do not really understand this part, can you please explain?Also, Are any vehicles allowed in section 179? one of them is a small cargo van ( ford transit connect) other one I plan on buying soon is a chevy pick up truck. I read somewhere that vehicles needed to be over a certain weight and that trucks needed to have a long bed to qualify for section 179. Is this true?Thank you Lane
Expert:  Lane replied 1 year ago.

On the first piece... Lets say that your profit from business is 10,000 (revenue of 50,000 and expenses of 40,000)

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You can only use 10,000 of the cost of the vehicle, and must carry forward the rest to the folllowing year.

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But if there is OTHER income in the household, say a wife's salary on a joint return, then even though you would have taken your business taxable income down to zero, any other income in the household would still be there to help qualify for the mortgage.

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There are three section 179 limits when it comes to vehicles:

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For passenger vehicles, trucks, and vans (not meeting the guidelines below), that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction is limited to $11,060 for cars and $11,160 for trucks and vans.

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SUV's, vehicles (with a gross vehicle weight rating above 6,000 lbs but no more than 14,000 lbs) qualify for expensing up to $25,000.

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Then SOME vehicles are unlimited:

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    Heavy “non-SUV” vehicles with a cargo area at least six feet in interior length (this area must not be easily accessible from the passenger area.) To give an example, many pickups with full-sized cargo beds will qualify (although some "extended cab" pickups may have beds that are too small to qualify).Vehicles that can seat nine-plus passengers behind the driver's seat (i.e.: Hotel / Airport shuttle vans, etc.).Vehicles with: (1) a fully-enclosed driver's compartment / cargo area, (2) no seating at all behind the driver's seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a classic cargo van.
Customer: replied 1 year ago.
Thanks!Just to make sure I understand you correctly: this year I can write off my cargo van full under section 179. if I buy this 50k$ truck this year I will use standard depreciation x5 years = write off $10,000 a year including this year. Correct?
Expert:  Lane replied 1 year ago.

Yep, that's right! (There ARE annual limits for auto depreciation) so you may not get the full 10,000 in the second year.

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And there's also a bonus depreciation that can be used in year 1

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See this:

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Year Place in Service 2016

1st tax year ....$11,160 ($3,160 plus $8,000 bonus depreciation)

2nd tax year .....$5,100

3rd tax year .....$3,050

4th and later tax years ...$1,875

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So on that truck you won't get it all done i 5 years, because of the annual ,imits on deductions for autos.

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But everything else sill stands here... you can deduct 100% of the Cargo Van, and use standard depreciation for the truck... The annual limits on the truck (on all standard depreciation) will many times not get it all done in 5 years, depending on the value of the vehicle.

Expert:  Lane replied 1 year ago.

Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

I know it takes an extra step, but JustAnswer won’t credit us for the work until you rate.

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Thank you!

Lane

I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate, both for-profit and non-profit, and tax advice on three continents, since 1986

Expert:  Lane replied 1 year ago.

Did you see my follow-up?

Customer: replied 1 year ago.
Since I can't depreciate the truck in 5 years due to its value, could I use the truck under section 179 and wiritte off the whole value and depreciate the cargo van instead because of its lower value? I paid $24k for cargo van and just bought truck yesterday for 49k
Expert:  Lane replied 1 year ago.

Yes! - very good thought. If that's what work's best for your numbers ... you can ALWAYS take regular depreciation.

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I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

I know it takes an extra step, but JustAnswer won’t credit us for the work until you rate.

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Thank you!

Lane